Sugar consumption gets to pre-Covid level as hotels and restaurants open up

Demand has emerged from cold drink and ice creams makers that seek to fill pipeline inventory which got diminished during the lockdown due to factory closure and freight disruptions

Sugar demand has recovered from the destruction seen during the lockdown and has returned to pre-Covid levels on a sharp increase in orders from cold drink and ice-cream makers to fill their inventory and meet daily needs.

This revival in demand comes despite the closure of roadside tea stalls, and with few sweets shops, hotels and restaurants getting back to business.

The demand resurgence has come as a relief for sugar mills, which were struggling to pay cane dues to farmers. With the minimum selling price (MSP) of sugar fixed at Rs 31 a kg, at least 10 per cent lower than the cost of production, sugar mills were focusing on offloading inventory. Hotels, restaurants and catering segments (Horeca) consume around 20-25 per cent of output.

“With the lockdown getting relaxed, demand for sugar started picking up from the beginning of May, and has now reached pre-Covid levels. Now that the country is in the unlocking phase, and restaurants and malls are also being allowed to open, demand of sugar will rise  further and mills will be able to sell the entire quantity allocated in June,” said Abinash Verma, director general of the Indian Sugar Mills Association (Isma).

Until February, sugar mills were able to sell around 1 million tonnes (mt) of additional quantity this year which was nullified because of the demand destruction during the lockdown.

 

 

Mills in north India sold their monthly quotas of sugar in May, but west and south Indian states have some unsold inventory left. The government has extended the sales window for the May quota and has released 1.85 mt of monthly quota for June. Analysts believe that sugar mills will be able to sell their entire quota and a marginal quota carried over from May by the end of this month.

“With demand picking up, sugar sales in the 2019-20 sugar season (October to September) may be at 25-25.5 mt, almost close to last year,” said Verma.

Sugar business contributes nearly 81 per cent towards mills’ top line, while distillation (ethanol) and co-generation (electricity) constitute 12 per cent and 7 per cent, respectively.

“Mills in Uttar Pradesh are sitting on high inventory due to bumper sugar production this year. Resumption in demand would help mills there offload a portion of inventory,” said Vijay Banka, managing director of Dwarikesh Sugar Industries.

Sugar production was reported at 26.82 mt, around 6 mt lower than the 32.75 mt reported at the corresponding period last year.

Isma estimates closing balance between 9.5-10 mt, which might rise to around 11.5 mt at the end of current season.

Sugar mills were able to sign export contracts of about 3.5 mt, out of the total quota of 6 mt for the current season.